FNAN 250 ULL CHAP 7
NASDAQ has which of these features?
Computer network of securities dealers Multiple market maker system
R=
D1/P0 + g
P1 = (__ + P2)/(1 + R)
D2
What is the formula for the present value of a growing perpetuity where C1 is the net cash flow, R is the required return and g is the growth rate?
P = C1/(R-g)
P1 D1 R P0 D0
P1 Price in one year D1 Next expected Dividend R Discount rate P0 Price today D0 Dividend just paid
P0 = (D1 + P1)/(1 + __)
R
True or false: Total return is calculated by adding the dividend yield and the capital gains yield.
T
Which of the following ratios might be used to estimate the value of a stock?
The Price/Earnings ratio The Price/Sales ratio
Which of the following defines the primary market?
The primary market is where stocks are issued for the first time.
Which of the following are rights of common stock holders?
The right to vote on matters of importance. The right to share proportionally in any residual value in the event of liquidation. The right to share proportionally in any common dividends paid.
The NYSE differs from the NASDAQ primarily because the NYSE has:
a physical location a face-to-face auction market
A person who brings buyers and sellers together is called a(n) ______.
broker
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _________ dividends.
cumulative
Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____.
dealer
The price of a share of common stock is equal to the present value of all ______ future dividends.
expected
A PE ratio that is based on estimated future earnings is known as a ____________ PE ratio.
forward
The ______ can be interpreted as the capital gains yield.
growth rate
The value of a firm is derived using the firm's ______ rate and its _______ rate.
growth; discount
Stock price reporting has increasingly moved from traditional print media to the ______ in recent years.
internet
If a company's growth for Years 1 through 3 is 20% but stabilizes at 5% beginning in Year 4, its growth pattern would be described as _______.
non-constant
Three special case patterns of dividend growth discussed in the text include:
non-constant growth constant growth zero growth
Preferred stock has preference over common stock in the:
payment of dividends distribution of corporate assets
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
one vote per share held
The fundamental business of the New York Stock Exchange is to attract _______.
order flow
Initial public offerings of stock occur in the ____ market.
primary
Shares of stock are first brought to the market and sold to investors in the___market
primary
The trading of existing shares occurs in the ______ market.
secondary
Earnings over the coming year are expected to be $3 and a benchmark PE of 15 applies to earnings over the previous year. The _____, or forecast, price over the coming year is $45.
target
Using a benchmark PE ratio against current earnings yields a forecasted price called a _______ price.
target
A benchmark PE ratio can be determined using:
the PEs of similar companies a company's own historical PEs
All else constant, the dividend yield will increase if the stock price ____.
decreases
New York Stock Exchange Designated Market Makers (DMMs) were formerly called ________ .
specialists
Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
Stock has no set maturity Dividends are unknown and uncertain The required rate of return is unobservable
The dividend yield is determined by dividing the expected dividend (D1) by:
the current price (P0)
If the growth rate (g) is zero, the capital gains yield is ____.
0
Which one of the following is true about dividend growth patterns?
Dividends may grow at a constant rate.
Websites that allow investors to trade directly with one another are termed _______.
ECNs
For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
F
True or false: Common stock has a set maturity.
F
True or false: Daily stock prices can only be found by looking up the stock in newspapers.
F
True or false: A PE ratio that is based on estimated future earnings is called a regressive PE ratio.
False
What information do we need to determine the value of a stock using the zero growth model?
Dividend Discount rate
In the dividend growth model, the expected return for investors comes from which two sources?
Dividend Yield Growth rate
Which of the following represents the valuation of stock using a zero growth model?
Dividend/Discount rate = D/R
Which of the following are cash flows to investors in stocks?
Dividends Capital gains
The two most important stock markets in the U.S. are the New York Stock Exchange and ______.
NASDAQ
This type of growth describes a company that grows quickly at first, then slower in future years.
Non-constant
The constant-growth model assumes that _________.
dividends change at a constant rate